Weekly dilemma: TUPE and holiday entitlement

Our company has just bought another business and we are aware that TUPE applies to the purchase. As a result of the acquisition, we have taken on 10 new members of staff. However, their contracts provide for five weeks’ paid annual leave which includes the bank holidays whereas our existing staff receive five weeks plus bank holidays. Are we obliged to increase the holiday entitlement of these TUPE transferred staff to match that of our existing workforce? If not, can we do this anyway if we are happy to agree to an increase in their entitlement?

As you probably know, when a TUPE transfer takes place, the transferee inherits the contracts of employment of the persons employed by the transferor immediately before the transfer took place. This means that the employees have the right to transfer on the same terms and conditions of employment that they previously enjoyed with the transferor. The transferee also inherits the transferor’s rights, powers, duties and liabilities, other than any criminal liabilities, under, or in connection with, those contracts of employment (special rules apply to the transfer of occupational pension rights). However, TUPE does not grant transferred employees contractual rights that are additional to the rights they had in place before the transfer. So your transferred employees have no right to an increase in holiday entitlement to match the entitlement of your existing workforce.

Of course, as you have mentioned, you might be happy to agree to increase their annual leave entitlement, even though you are not legally obliged to do so. Be aware that once a TUPE transfer has taken place, it is not open to you to presume to vary the contracts of employment of the transferred employees with a view to harmonising their terms and conditions with those of your existing workforce. A variation of an employment contract is void if the principal reason for the variation is either the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational reason (ETO reason) entailing changes in the workforce.

Both parties may, however, agree a variation if the sole or principal reason for the variation is either a reason connected with the transfer that is an ETO reason entailing changes in the workforce, or is a reason unconnected with the transfer. Your desire to harmonise annual leave entitlement with that of the existing workforce will not constitute an ETO reason because there is no significant change in the overall numbers or functions of employees comprising the workforce. That said, the Court of Appeal held in the recent case of Regent Security Services Limited v Power [2007] EWCA Civ 1188 CA that if a contractual variation is agreed between the parties which is beneficial to the employee (as it would be in your case), they are still entitled to enforce this.

This is because the purpose of TUPE is to protect employees and it would be inconsistent with that aim if an employee was not able to benefit from favourable terms that they had agreed with you.